D CEO ⋅ September 2012

Texas Flexes Its Global Muscle

The state has embraced international opportunities, helping to bolster its economy and become No. 1 in job growth.

By W. Michael Cox and Richard AlmFrom D CEO September 2012

If it were once again an independent country, Texas would rank as the world’s 14th largest economy, its total output of $1.3 trillion coming in just behind Spain and Australia and ahead of Mexico and South Korea.

This statistical secession shows Texas as a force in the global economy. A more complete picture comes from data on exports and foreign direct investment (or FDI).

Many Americans distrust globalization—but Texas has embraced it and emerged as a big winner. Exports and FDI contribute to Texas’ leading the nation in job growth.

A decade ago, Texas vaulted over California to become the leading exporting state. Since then, Texas has stretched to a sizable lead, with exports (excluding “re-exports”) of $213 billion in 2011, well ahead of California’s $122 billion (see first chart).Nationally, export growth has been strong in recent years—but Texas’ foreign sales have been stronger. Its share of U.S. exports has risen from 14 percent in 2008 to 17 percent in 2011, according to Census Bureau data.

Texas firms sell a wide range of products overseas, led by petroleum products, machinery, transportation equipment, electronics and chemicals. Not surprisingly, Mexico ranks as the top destination, buying a third of Texas’ exports. Canada, China, and Brazil are the state’s next most important markets.

The Census data cover only merchandise exports—tangible goods. However, Texas is home to a large number of service firms that are world leaders in energy and other industries. If tracked, Texas’ services exports would add considerably to the state’s global footprint.

Texas also leads California, New York, and other states as a destination for FDI—money to buy or start operations. According to the Census Bureau, foreigners contributed nearly $120 billion into Texas in 2007, the most recent year for the data (see second chart).

A state report identified the most attractive sectors for FDI from 2005-10: software and IT, business services, communications, energy, and industrial machinery. Most of the investors are coming from Britain, France, Germany, Japan, and Canada.

Why has Texas been doing so well in international business? The state ranks behind only tiny Delaware in the latest Economic Freedom of North America report (see third chart). A business climate that lets market forces operate freely helps companies compete for sales in the global opportunities.